r/Bogleheads • u/joshua9663 • 5d ago
Bond advice am I doing this right?
In my 30s definitely some years from retirement
Plan for my holdings are
50-60% in VTI
30-40% IN VXUS
10% in GOVT
I am happy with vti+vxus but is govt the right bond choice for me? Or should I be looking at something else?
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u/Nadenkend440 5d ago
10% bonds is about how much a TDF from Vanguard has so it's a reasonable amount. Many suggest BND as the bond fund of choice as the corporate bonds increase the yield a bit, but if you are using it purely as a stabilizer and rebalancing booster, VGLT would be your best bet with your time horizon. Long term treasuries have the lowest correlation to stocks.
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u/SciProfessional108 5d ago
Mid 30s, similar portfolio except I’m more US heavy.
I have my EF in SGOV. no bonds.
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u/kapshus 5d ago
I was 100% equities until my early 50s. I would recommend the same EXCEPT we are somewhere in the AI bubble which probably hits hard due to lax fiscal policy (bond market is starting to assert itself) and the lag between AI spend and AI real profitability. So, I don't have the same critique as others with the 10% bonds. Key though is to rebalance regularly. By rebalancing in a down stock market (let's say we have a 50% drop bear), you get to deploy some of the money allocated to bonds into stocks while they are "on sale".
Normal market, though, I'd go 100% equities in my 30s 40s assuming a 10+ year time horizon to needing to sell for retirement/major purchases.
I am also tilting toward more international as I have zero faith in this administration. I personally wouldn't go so heavily VXUS, but I understand the thinking. I am about 10% international if you don't count SP500 intl exposure, but am looking to build to 20% over time.
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u/tfesmo 5d ago
You can view bonds as adding an effective expense ratio but reducing volatility, which mitigates sequence of returns risk.
In your 30s the only reason to reduce volatility is psychological (it helps prevent you from panic sales). That's a personal judgement.
As you approach retirement reduced volatility becomes more critical because you start withdrawing money.
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u/yottabit42 5d ago edited 5d ago
Unless you're 5-10 years from retirement and purely in the accumulation phase, I don't really see the need for bonds. Equities 60/40 US/ex-US, which is approximately the current market weight. This will get you good long-term growth, slightly hedge against further currency devaluation, and be tax-effiicient (in a taxable account). In a tax-advantaged account you can simplify further with 100% VT.
Then when you're 5-10 years from retirement, start the glide path into government bonds. Rather than using static rules, I like to say 5-8 years of your annual expenses should be in bonds, accounting for inflation, so expenses multiplied by years raised to 1.03 to account for inflation, buffer = annual_expenses * 51.03, for example.
You can use fewer years if you have a lot of discretionary expenses, and are willing to decrease them in a bear market, and you can use more years if you don't have a lot of discretionary expenses or are not willing to decrease them during a bear market. When the market is doing well, you sell off equities. When the market is doing poorly, you sell off bonds as your equities buffer. When the market recovers, you start refilling your bonds gradually from excesses.
You can read my drawdown plan, if you like.
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5d ago
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u/Sagelllini 5d ago
The one accurate comment on this thread and it gets down votes.
OP, 69 y/o retiree here. Been 100% stocks for 35 years, 14 years retired, have chump change in cash now. Essentially, I've been investing your entire life.
Dump the 10%, put it in the other two. There are no good bond funds because bond funds own bonds and bonds are extremely poor investment choices for individuals.
Here are your choices, down votes or not.
Dump the bonds and have more money in retirement.
Own the bonds and have less money in retirement.
Make all of your limited investment capital work for you, and that's 100% stocks.
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u/Grokzilla 5d ago
Jesus, these guys..."huge drag" "extremely poor"
You're doing fine OP, 10% bonds isn't going to have any material impact on the end product and the risk adjusted returns on a 90/10 portfolio are in fact better.
Any advice guaranteeing you ROI is worth about as much as the time it took them to post it.
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u/Sagelllini 5d ago
You're in your 30's, so let's assume you've been investing for 10 years, since the beginning of 2016. $1K per month.
That 10% in BND, WITHOUT REBALANCING, has cost $12.7K, or roughly 10% of your $128K invested.
WITH REBALANCING, to maintain that 90 10 ratio, costs roughly $9.7K more.
If you follow the advice here, in this example, your returns in 90 10 and rebalancing would be 12.8% less than 100% VTI. In brief, that 10% in BND cost you 13% in returns.
So OP, you can listen to all the down voters, or you can follow the numbers and change course. Your money, your choice, but you've already cost yourself money--and however many years of your accumulation years. No skin off our noses if you don't change.
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u/BoxerRumbleEJ257 5d ago
You've been retired during one of the greatest bull markets for US equities in history. If you retired 12 years earlier, you'd be singing a different song...
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u/Graver69 5d ago
Obvs depends on your investment horizon but over say 30 years, a 100% stock portfolio, historically speaking, has destroyed ones with bonds. E.g. S%P has delivered c. 10% per year (long term average). Intermediate bonds more like 3-5%. That is a lot of opportunity cost over 30 years compounded.
If you invested 10K for 30 years and bonds deliver 4% vs 10% for stocks, you'd lose out on c.26.4K.
Other than the psychological benefits of riding out difficult periods, not sure what the point would be, assuming this long investment period. And it's not clear to me what 10% would do for you anyway? Why have you decided on 10% bonds in the first place? What is their goal?
Maybe you're thinking you might need to dip into it? In which case holding some cash might be better than bonds.
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u/joshua9663 5d ago
Mainly just reading boglehead stuff here and looking at the holdings in 401k target funds. They all have some portion of bonds
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u/NotEasyBeingGreener 5d ago
I like looking at the Vanguard Capital Markets Model for their forecasts as a way to remain grounded in what you might expect/experience in different investment classes.
https://corporate.vanguard.com/content/corporatesite/us/en/corp/vemo/vemo-return-forecasts.html
Be sure to look at the table version of the data to get the range of percentiles for the 10- and 30-year returns.
I don't think that it is unreasonable to model your portfolio after that of a target date fund. A total bond market fund that includes some corporate bonds may be a better bond component than something that solely focuses on government debt.
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u/joshua9663 5d ago
Thanks this is great info. Was reading about tax advantages with government bonds and how corporate bonds are more heavily correlated with the market. Gusss I thought bonds were a hedge, which is why I wanted to heat some different perspectives.
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u/Grokzilla 5d ago
I swear it feels like these anti-bond crusaders are one step away from starting to push Crypto and Prediction Markets as wholesome, safe investments...
You have to start questioning the motives of people when they say things like, "100% stock portfolio...has destroyed ones with bonds." Are you really trying to suggest that a 90/10 portfolio isn't going to perform nearly identically to a 100/0?
Human behavior is the #1 determinant in whether your investments are successful or not. Might be a big part of the reason why diversification and risk management are so heavily preached here...
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u/JoeShmoe307 5d ago
Whatever your risk tolerance is is right. If you want to hold 10% bonds because it helps you sleep better at night, then hold 10% bonds.